BROOKFIELD ASSET MANAGEMENT LTD (BAM) 2014 Q4 法說會逐字稿

Welcome to the Brookfield Asset Management 2014 fourth-quarter results conference call and webcast.

As a reminder all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions.

(Operator Instructions)

At this time, I would like to turn the conference over to Amar Dhotar, Investor Relations for Brookfield Asset Management. Please go ahead.

Thank you and good morning, ladies and gentlemen. Thank you for joining us for our fourth-quarter webcast and conference call.

On the call with me today are Bruce Flatt, our Chief Executive Officer; and Brian Lawson, our Chief Financial Officer. Brian will start this morning, discussing the highlights of our financial and operating results. Bruce will then discuss our views on the current investment and market environment, as well as the number of our major growth initiatives in the quarter.

At the end of our formal comments, we will turn the call over to the operator to open the call up for questions. In order to accommodate all who want to ask questions, can we please ask that you refrain from asking multiple questions at one time to provide an opportunity for others in the queue. We will be happy to respond to additional questions later in this conference call, as time permits.

I would at this time remind you that, in responding to questions and talking about our new initiatives and our financial and operating performance, we may make forward-looking statements. These statements are subject to known and unknown risks and future results may differ materially. For further information for investors, I would encourage you to review our annual information form or our annual report, both of which are available on our website.

Thank you. and I would like to turn the call over to Brian.

Thanks, Amar, and good morning.

So, we had a strong year in 2014, and we have a number of initiatives under way that have us well positioned for future growth. Funds from operations, or FFO, for the year was $2.2 billion. That was in line with our expectations and above last year on a comparable basis.

We did record a particularly large number of carried interest and realized disposition gains in 2013, so total FFO in that year with higher, although we still did book $569 million of gains in the current year. Excluding the gains in carry, FFO was $1.6 billion for the year, compared to $1.5 billion in 2013, and FFO for the fourth quarter on the same basis was $420 million versus $406 million.

Net income for the year was $5.2 billion on a consolidated basis, which is a record for the Company, and that compares to $3.8 billion in the previous year, a significant component of income and the growth in income related to changes in the valuation of our assets, which were very favorable and totaled $3.7 billion in aggregate. We added $16 billion of fee-bearing capital in 2014, and that brings our total to $89 billion.

The growth reflects a number of factors including $9 billion of capital issued by our flagship listed entities and our private funds, and $4 billion of additional client investments into our public markets portfolios. We expect fee-bearing capital in our private funds group will continue to grow, as our three flagship private funds are now 80% committed in aggregate and that puts us in position to raise successor funds. In our experience, these follow-on funds tend to be significantly larger than their predecessors, and so as a result, we are currently marketing $11 billion of private funds and expect to be in a position to launch a further $10 billion of fundraising during the latter part of 2015.

Our fee-related earnings rose by 26% year-over-year to $378 million. Incentive distributions totaled $48 million in 2014, which are an important component of that. Subsequent to year-end, I would note that all our flagship entities announced increases in their dispositions for 2015, reflecting the continued growth in their underlying cash flows, and this of course will in turn increase our future incentive distributions.

In 2014 we committed $18 billion to new investments, including commercial properties in India and China, and $3 billion of renewable energy in the infrastructure assets in Europe. Subsequent to year-end we announced that we have partnered with a sovereign wealth fund to acquire the Canary Wharf development in London, deploying a further $1.8 billion. Bruce will cover this further in his remarks.

We disposed of $3.6 billion of property and private equity investments as part of our ongoing effort to monetize mature assets to lock in gains for our clients and to reallocate capital to higher-yielding opportunities. In the process, we realized $569 million of disposition gains, as I mentioned earlier.

So, I'll now turn to the financial results of our property renewable energy infrastructure and private equity operations and our investments in those, and briefly highlight the performance last year in each of the underlying operations.

Our commercial property investments, which are primarily held through Brookfield Property Partners, which of course was launched in 2013, and we've made enormous strides with this company over the past year, expanding the global office and industrial property portfolios in the process. FFO was nearly $900 million during the year, compared to $550 million in the previous year, and we had good performance in that from disposition gains, but we also experienced a good pickup in the underlying NOI and FFO as a result of strong leasing.

In that regard, the Business signed 11 million square feet of new leases during year, including agreements that bring our flagship Brookfield Place New York complex back to a 95% occupancy rate. These new leases kicking in 2015 and 2016, and will contribute nicely to FFO overall as that occurs. And overall as well, new rents in the portfolio were done at 34% above the expiring leases. In the retail business, retail property business, we recorded nearly 5% growth in same property NOI, and signed a number of new leases in the malls at strong rental spreads, 15% above the expiring leases.

In the industrial and other property assets, the FFO there increased by 26% to $77 million, and over the past two years we've made a number of acquisitions with a gross value of nearly $5 billion to build this portfolio, primarily in North America and Europe. And while we've been successful at building our business through acquisitions, we've also have a number of other ways to grow. In particular in the property portfolio, we have approximately $7 billion of development opportunities, with Canary Wharf accounting for an additional $2 billion.

Turning to the renewable power business, the FFO from this part of our business, excluding gains, was $313 million in 2014, and that compares to $271 million in the previous year. The increase was primarily due to higher realized prices on the electricity that we sold, particularly in the first quarter, although this was offset in part by a return to more normal generation levels in the US after an extremely strong year in 2013.

We acquired or commissioned 1700 gigawatt hours of generation capacity in 2014, expanding the portfolio by 8%, and now have a total of 23,000 gigawatt hours of generation overall. A significant part of the increase came from our expansion into Europe, with our Irish wind farm portfolio contributing 890 gigawatt hours.

Our infrastructure group contributed FFO of $222 million in 2014, that's prior to gains, in line with the previous year. And on a same-store basis, we experienced 11% growth in FFO. We benefited from capital projects throughout the Business, and the contribution from new investments such as toll roads and a rail network in Brazil, and, that offset prior contribution from some assets that we sold in the previous year, including Timberlands and a utility in New Zealand.

During the quarter, we committed to acquire a portfolio of 67 telecom towers in France. This launches a new communications infrastructure platform for us in a sector where we believe there is excellent growth potential.

Our private equity business contributed FFO of $446 million for the year, again prior to gains compared to $499 million in 2013. So that went down a bit, but that was primarily due to lower contribution from some of our industrial portfolio companies, which experienced relatively lower prices during the year compared to some pretty exceptional pricing particularly in the first half of 2013.

We're in the process of privatizing our residential housing businesses in both North America and Brazil within this group. We continue to believe that we are in the expansion phase of the housing cycle in the United States, and look forward to increasing contributions from the Business there. In Brazil, we're refocusing the residential business on the high end of the condominium market, which we believe has very strong fundamentals going forward.

FFO from our residential businesses increased by $118 million to $164 million during the year, and that reflects in particular strong pricing and better margins in the US housing market. So finally, the Board of Directors declared a quarterly dividend of $0.17 per share to be paid at the end of March; it's an increase from the $0.16 per share dividend payed last quarter.

So, that's a quick summary of our operating and financial results, and I'll now turn the call over to Bruce. Thank you.

Thank you, Brian and good morning, everyone.

As you've heard from Brian, we had a strong year in 2014. More importantly, we're working on a number of initiatives, as usual, which hopefully will be positive for the organization going forward.

I wanted to use the few minutes today that I was allocated to touch on three themes. First, the current business environment, second, our priorities for the year, and third, just touch on our recent investment in Canary Wharf.

The biggest business story in recent months was the decline in the price of oil. Of course everyone was surprised how quickly the price of energy dropped. This is an unexpected move in a widely followed commodity, and it's one of the reasons we try not -- we try to insulate our sales from commodity movements within the different businesses that we operate. We generally find we're better off investing in backbone infrastructure of the global economy, and at times like this, be ready to invest around the commodity sector when we see opportunities caused by these types of events.

As a general statement, lower energy prices are good for the global economy. There's always a bit of a shock that comes when prices move quickly, but experience shows us that markets adapt quickly, and lower oil prices are generally good for the economy in many areas.

The second big story in business has been the rally in the US dollar against most other major currencies. This move has driven in part by relative strength of the American economic recovery, which we see in most of the businesses we have, but in part by relative weakness in other regions, including Europe and many of the emerging markets.

As we have extensive investments currently in the United States, we will do well as the economy continues to strengthen. This also presents us with significant opportunities to expand our business in Europe, as the governments and corporations continue to deleverage and require capital, and for us to invest in emerging markets such as Brazil, India and China, where capital remains scarce to a large degree.

Third, I wanted to briefly comment on the US. The economy is growing at a slow but steady pace, with few signs of inflation. These contracts with governments in the rest of the world, which are attempting to start growth and avoid deflation.

That combination leads us to conclude that interest rates should continue to remain relatively low for a while. Rates at these historically low levels are very good for our business, and low rates make a compelling case for institutional investors to continue to shift from fixed income investments to higher-yielding investments, which our real asset strategies are tremendously valuable to them.

With that backdrop, we wanted to highlight our priorities for the year and the next few years. As you know, we try to be flexible and global in our investment strategy. We see opportunities right now to be helpful to a number of the commodity businesses that need capital at this time, as commodity prices have fallen faster than their budgets anticipated and capital markets are generally not receptive to raising money.

Many of these commodity companies own significant infrastructure assets for historic reasons, and we believe as in past and as we are today with many others, that we can be useful partners to a great number of these. So we continue to see significant opportunities to put capital to work in the coming period on the heels of, as Brian said, in 2014 we put almost $18 billion to work in our different businesses.

Our other major priority this year is launching a new round of flagship private funds. Our existing property infrastructure and private equity funds have excellent track records and are largely committed. We should close or launch over $20 billion of funds this year, and we're finding that institutional investors continue to want to allocate an increasing proportion of their assets to alternative strategies, and in particular to real asset strategies that we specialize in.

Lastly I wanted to explain what happened in recent months at Canary Wharf, and there's some materials in our shareholder letter, but I'll say a couple of things. We first invested in Canary Wharf in 2002. In 2009, we increased that investment when there was an opportunity, and now we have doubled our investment again. To date, the returns have been excellent, and we expect the future to be better.

Over the past year, after talking to a number of investors at Canary Wharf, we decided to partner with Qatar Investment Authority, who was another significant Canary Wharf shareholder, and bid for control of the company. The bid was accepted a few weeks ago, and we will shortly own 100% of Canary Wharf in a 50/50 partnership with QIA in BPY. This is an important step for our property business, as we continue our efforts to remake BPY into the leading global property investor out there.

Canary Wharf itself is one of the finest pieces of real estate in the world. It's approximately 120 acres of land, with 35 major properties serving 100,000 people every day. Most importantly, a new rail link will open in 2018 and further link Canary Wharf to the rest of London and to Heathrow airport, dramatically cutting the commute for people that work there, and for people coming to shop or people that live at Canary Wharf. The estate also has 11 million square feet of commercial and residential development potential, which we intend to capitalize on and work with the Management team to bring that online.

To sum up, the economic outlook, while volatile over the past while, has generally, in our view, been good for our business. We see excellent opportunities to both raise capital in this environment and to invest in opportunities. While some places, in particular the United States, have fair values in the marketplace, there are many other places in the world which are investor markets. And that's good for our Business, and we continue to deploy most of our capital in these places.

With that, operator, I'll turn it back to you, and we would be glad to take any of your questions on the line.

Thank you. We will now begin the question and answer session.

(Operator Instructions)

Cherilyn Radbourne, TD securities.

Thanks very much, and good morning.

My first question relates to the impact of lower energy prices on sovereign wealth funds, and I'm just curious whether you think that will have any meaningful impact on the level of competition for assets and/or the fundraising environments?

Thanks, Cherilyn, this is Bruce. So, I think I'll split the question into two, and first I will deal with funding.

I just -- make a general comment, and I'd say that the amount of money that has been accumulating in sovereign plans around the world, in large institutions around the world, is very significant, and just by sheer compounding of the numbers, these wealth plans continue to get bigger every day. And, there may have been an exceptional period of time where they compounded even greater because the inflows were very significant, but firstly I think the inflows are still positive, and secondly, the compounding of the wealth is an enormous number that they have to keep reinvesting, so I think that's important to note.

Another point I'd make is that virtually all of these institutions are continuing to allocate greater percentages of their portfolio to real assets. So, even if the compounding wasn't happening, which it is, you will see a greater amount of allocations to real assets. And, that's largely because fixed income, as you know, earns 1% or 2% globally or 0% or negative, and real assets can earn a much significant -- greater amount.

So, I think irrespective of all of that, the percentage's allocation continues to go towards real assets. And, all of that I'd conclude with just saying bottom line, the trend continues unabated, that people are putting money into real assets. Although, there is no doubt, admittedly, that lower oil prices will slow the inflows, and therefore there may be less money on the margin for everything they do.

On the asset side, I would say most global investors continue to look to invest in real assets, and this may slow competition again around the edges, but we don't see a lot of competition for the types of things we do from most of the global institutional investors. Most of them, we're working for them, bringing them transactions. So, I don't really think that it's that much of an effect, but it could be again on the margins.

Okay, thank you for that. Second question is just on the target carried interest, which is now $375 million versus $350 million last year, and I guess I was just a bit surprised that it didn't increase by more given the substantial increase in your fee bearing capital. So, maybe you can help me out with a what I am missing there?

Sure, Cherilyn. So I think -- so first of all, just stepping back in terms of how we look at target carry, and what it is intended to be is a -- really, it's basically a mechanical calculation, but it's what level should the carry be accruing at for our funds over time?

And so I will just give the -- if it's a fund that has a -- to use easy numbers, if it's a fund that has a 20% target return and a 20% carry, then you should be getting 400 basis points of carry. You'll reduce it a bit for base fees, but that's generally how it works, and so it should track smoothly along.

Now, it didn't step up quite as much as you might think during the year, in part because we had some capital that rolled off that did have some higher carry on it. So, that was probably one of the bigger factors, and it's still a little bit overall on a blended basis because we have some core funds and lower yielding funds.

But, if you look at the type of capital that we would be sourcing and bringing onboard in the coming years, and this year in particular, these are more value-add and increasingly opportunistic return type funds, and so we would expect to see some pretty significant pickups. Because, these funds are going to be more in the nature of 15% to 20% target returns and 15% to 20% carry.

So, if you do the maths on that, we should be seeing carry, target carry 300 to 340 basis points on that capital before any expenses. So, we would expect to see a pretty good step up in that, going forward.

Okay, perfect. That's all my questions. Thanks.

Mario Saric, Scotiabank.

Thank you, and good morning.

My first question is just more of a two-part question on oil. The first part being, Bruce, I think you mentioned a couple of positives with respect to a lower oil price in terms of better US retail sales on the infrastructure platform. Maybe people drive more, so your toll roads will be a bit busier.

When we think about your overall portfolio at a prolonged period of $50 oil versus $100, should we think about valuation for the asset as being higher versus lower on a net basis? And how should we think about that if oil stays where it is for the next two, three years?

This is a guesstimate. I would say, generally, if you take our portfolio, given its scale and size, it's around the margins that it will affect us if oil stays at these numbers. There is no doubt it will affect anything we have in oil markets. Some of the real estate we have in Houston and Calgary will be affected, but given the scale of our business, it's not significant. Some of the private equity investments we have currently that are in and around the oil business will be affected.

I think more important for us is, it's on the margins to our business today and has been. Therefore, the amount of incremental capital that we can put to work, given the opportunities that have come about, will be far more meaningful to us than any amount of capital that is deteriorated by what has occurred.

I would say we're not an oil and gas company, and those companies have their issues with this pricing significantly, but we think the opportunities will be much more significant than any losses we'll take.

And just on the back of that last comment, this type of market dislocation has really treated Brookfield well, historically. You've bought really well, it brought you GGP back in 2008, 2009, during the financial crisis. But at the same time, a couple years back there's a lot of euphoria about Europe and potential large opportunities in Europe, given discount evaluations and limited access to that capital.

So, when you look at this potential opportunity, how do you think about it in terms of or in relation to what happened in the global financial crisis in 2009, versus perhaps maybe seeing a little less opportunity in Europe than you thought you would, coming out of the correction there?

I'd start out by saying that while we didn't by GGP in Europe, we have done a lot of smaller transactions, and put a lot of capital over the last 24, 36 months into Europe, and we think we'll continue to do that. Our business is, as you know, about once in a while finding something big, but hitting singles every quarter, and we've done a lot of transactions in Europe, just as a first comment.

Look, the oil business going down is not the global financial crisis. This is a single industry that -- it's large, and it seems to attract a lot of attention because it affects every individual and every corporation, but it's not the global financial crisis. It's a single industry that's going to go through some distress.

There will be some people that lose some money, and there will be others that will make a lot. We believe that we're positioned to capitalize on a number of opportunities to assist companies with their capital needs, and that probably could be in all of our businesses, but most specifically, it will be in the infrastructure business and in our private equity business.

And -- there could be large opportunities, and I think there will be, but I'd say on a positive note, it's a single industry situation not the global financial crisis, if you were thinking about that.

Okay, that's helpful. And my second question just relates to capital allocation, and there's a comment in the shareholder letter with respect to accumulation of cash on the balance sheet, and the intention to maybe find opportunities to buy back stock in more meaningful ways.

I'm just curious whether anything has changed with respect to your policy in terms of share buybacks and whether there's a positive correlation between the two? And, that if you do see more cash on the balance sheet, are you going to be more incentivized to buy back stock (inaudible)?

I think it's fair. As the amount of cash we have at our disposal increases, it broadens the range of opportunities. We're definitely committed to executing stock buybacks when they make the most sense from a capital allocation perspective. So nothing's changed in that regard.

The reality is, last year we had a lot of great opportunities to put our capital to work in building the Business, especially in the property side. There was a lot of activity there, and frankly the stock was appreciating, and we weren't chasing it in that regard. But, it's something that will continue to be firmly in our sites, and is a highly ranked use of capital going forward.

Okay. Thank you.

Blaine Heck, Wells Fargo securities.

Great, thanks. Can you talk a little bit more about the development opportunity at Canary Wharf? What projects would you look to start earlier than later, and what you think the timing and cost would be like for commencing some of that?

I don't think I'm going to get into the specifics of when projects are going to start. All I'd say is that the management team at Canary Wharf has an incredible background in developing buildings. There are a number of office sites under construction, today. There's a big residential portfolio that can get built out longer-term.

And we're going to -- we and our partner have the intention of supporting them to build out all of those -- all of that development, given what is going on in London. And, the London market, as you know, for residential is extremely strong, and the east end of the city is becoming more attractive all the time. This is a development portfolio, though, that will build out over the next ten years.

Sure, that's helpful. Then for my second question, can you just talk about what effect the appreciation in the US dollar has had or will have on your investment decision process and future investments? Or, on the other side, dispositions?

So on the investment side, I would just say that, as the US dollar -- we're a US dollar security, and as the US dollar appreciates, what it does is, essentially, it creates scarcity of capital in other places, because more money comes to the United States. And whether that's caused by the US dollar going up or it's caused by the duress in other countries relative to the US dollar, it's the scarcity of capital in other markets that creates opportunity.

The biggest focus for us is not in United States for deployment of capital today. It's in the markets where there is scarcity of capital, and that's where our focus is today. And I don't think it's really caused by the US dollar being strong, but that's an outcome of that.

Great. Thanks for the color.

Alex Avery, CIBC.

Thank you. Could you just give us a little bit more color or an update on where you stand with energy future holdings?

There's not much update. There's -- energy future holdings, as you know, is a very large, for everyone, a very large bankruptcy in United States. It continued through. We're one of the large bondholders working on the committee to assist and reorganize, separate out assets, and bring it out of bankruptcy, and that will continue over the next 12 months.

Towards the end of this year or next year, it will be out of bankruptcy, we hope. But, there's not really much else I can say.

Sorry, did you say towards the end of this year or next year?

Could be either. It's -- I don't really have a specific date for you.

Okay. And then in the introductory remarks, Brian, you noted that your successor funds are usually larger than their predecessors, and you're marketing larger funds today. You've certainly got a lot of momentum in your fundraising, and you're also known for having a very long-term strategy for corporate strategy.

So, when you're looking at little further out, how far do you think you can grow your AUM on your existing platform? And then I guess once you reach whatever level that might be, what kind of strategic options do you think you might explore at that point, in terms of the evolution of the Business?

I'll make a couple of introductory comments on that, and Bruce may want to add something to it as well.

I would say, Alex, at this stage of evolution, that's not really something we need to get too definitive on. If we look at the scale and breadth that we have within our organization, whether it's fundraising, folks, investment professionals, operating professionals, it's a very large platform, and we're pretty well everywhere where we want to be.

And, it's at a scale where it's pretty manageable for us to grow it incrementally from the operating side, but manage a much more substantial amount of capital and assets and achieve great returns. And if we look at some of the other folks in the similar businesses, we look at the size of capital that they are effectively managing as well. So, we think we've got lots of room to grow, and without putting any strain on the system.

In any business, at some point in time you have to step back and figure out whether you want to be continuing to grow in exactly the same thing, or whether there are other things that you want to add on? And there certainly are other products and asset classes that would be natural complements to what we do today, and we've done some. You'll notice, we launched a credit hedge fund this year, and so we can do more on that front as well.

So there are logical ways for us to expand out in that regard as well. So, I think we've got -- put it this way, we think we've got a lot of runway for the foreseeable future.

I would only add just one thing to that, and that's that the broad general -- generalization I would comment on in the industry is that the big are getting bigger, and it's tougher to raise money for smaller funds. What's going on is a consolidation in the industry, where institutional clients and sovereign funds want to have less managers and more things done with those managers.

Thankfully, we're in the category of large, and therefore we and others like us continue to have large dialogues with leading institutions to be able to do more things for them. So, what that means is that there's more products being offered to those institutions, and larger scale coming from each of them. I think that trend will continue as the industry A, consolidates and B, matures over the next ten years.

So would that suggest that you're confident that you can continue to grow your AUM at the same rate as you have been? Or does that actually suggest that you might actually see an acceleration?

Well, I think -- maybe to fall back, on our last Investor Day, we spoke about a 10% to 12% annualized growth in AUM and fee bearing capital over the next five years.

I would say we feel extremely comfortable in our ability to manage effectively of that, and if you think about some of the comments that Bruce made as well, and also just the desirability of the type of investment strategies and asset classes we can provide our clients, I think it's pretty safe to say that there's a good chance we could outperform that quite handsomely.

But, those are the numbers we've put out there as an example of how we could see the Business unfolding, so people can understand what that growth means when you come dial it back into FFO and share values.

Okay, that's great, thank you.

Bert Powell, BMO Capital Markets.

Thanks. A question on fundraising. The $10 billion, how much of that is contemplated to be Brookfield Capital? [The second after the 11]?

Yes, so that would be about I'm going to say about 30%, plus or minus, would be coming off of Brookfield.

Okay, and of the $20 billion that you'll probably raise, how much of that's going to go into Cyrus's business? The private equity business?

I know that was a focus in the past, was to try to get that business some broader fund exposure. Can you help us think about what's going into kind of the real asset strategy? Not that Cyrus's isn't, but it's a little bit of a different business.

So, Burt, we're getting into an area where we're not really at liberty to provide the degree of granularity about a specific strategy or specific fund, although I think if you look back at what the predecessor funds are in those areas, and we do think we can grow successor funds you can probably get some sense of it.

Okay. Appreciate that, Brian. And then, just in terms of the asset management business now, for planning I think you guys are using 50% gross margin or better, but you built that business out as you grow. What could the margins look like with the scalability that's in the Business?

I think we've suggested we can take that 50% up to sort of 65%, in terms of the retained margin. Because, there's definitely some opportunities for scaling that out. Particularly -- There's certain parts of the Business that are definitely higher margin than others, and certain elements of the compensation are higher margin.

Not including the carry, I'm just talking about the base fee business.

Yes. That's right. In terms of the fee-related earnings, and everything that's included in there. Base fees, Private funds, listed funds, IDR's, public securities. There's definitely some scale there.

Okay, and then if I could, just one last one. Just on the energy marketing business, I just noticed the value on the balance sheet is up, round numbers, kind of $300 million from last quarter. Seems a little odd, given what's going on with energy pricing? Maybe help us understand what's behind driving that increase in the value for that business?

Sure. So keep in mind that a fair chunk of that value is still predicated on the long-term view of renewables. While there's been perhaps a little bit of dislocation in the very short-term, that part of it hasn't changed a whole heck of a lot.

What you did see over the past little while though, is definitely getting a benefit from discount rates on that front, and also improvement in the capacity markets. So those would have been positive factors, you would of had a little bit of a shift down in terms of some of the shorter-term pricing, but we still have -- we're still seeing a lot of strong fundamentals, longer-term.

Okay. So rates were a component of that?

Yes.

Okay. Thanks, Brian.

Thank you.

Andrew Kuske, Credit Suisse.

Thank you, good morning. I guess the question's for Bruce. It just relates to the distribution function of your asset management business related to sales function. If you can just give us some color and commentary on evolution of your client base, and really do you see an evolution towards just bigger tickets from the larger clients around the world?

Or is there a bit more of a move into the downmarket, as some of your other competitors have done, and gone to individual high net worth, effectively ultra-high net worth retail investors?

Yes, so our funds are generally larger institutional clients, which write bigger checks in general. If you look at our funds compared to others, we continue to diversify that out with smaller institutions, and each -- many of the smaller US and Canadian pension plans, endowments, and other institutional investors are adding alternatives into the portfolios. And I guess watching the larger institutions and adding it in.

So, we continue to -- I'd say that's diversification number one that's been happening over the last five years, and will continue over the next five, is moving to the small and medium-size institutional investor. So that's I guess diversification, number one, and that's a very significant amount. That's not to say that there won't be the same emphasis on the larger institutions, globally.

The third part is marketing our funds to smaller investors, or high net worth investors. And we've tried a little bit, it takes a lot of distribution, it takes a lot of effort, and so far we haven't needed it. We continue to experiment with it to learn about it, but it's costly, firstly, to distribute and second it takes a lot of effort. So far, we haven't spent a lot of time at it, but we continue in our groups, we continue to look at it to assess it.

Okay, that's helpful. And then just a somewhat related question. As your sales model continues to evolve and you are putting bigger funds over the goal line, just curious on how you think about the interplay with the large public LP's and the private funds?

Is there, in your mind, is there some kind of size limitation on the public LP's and how big they can effectively get? I ask the question just in part, if we think of the Kinder example that happened back in the summer, where they rolled in all their underlying entities back into the corporate structure?

It's an interesting question, and obviously we think about it a lot. Because, all we do for our investors is invest their money and try to earn them a good return for the risk we take.

In the public LP's, really, they're just a large institutional client that we manage on behalf of a bunch of small shareholders. They're getting an accumulation vehicle, and we put their money to work just like we do for global sovereign plans and institutional clients. And, if we can't grow those entities profitably, they won't grow.

I don't think that will be the case for a long period of time, and these can become very large entities, and I think, actually, the value of the entities will become -- They will become more valuable as they become bigger, because the ability to allocate capital and write larger checks and take more risks on a relative basis will be even more important to them.

So I think what we've found in this business is, the real asset business globally requires enormous amounts of capital, and if we can be one of those large players that can write large checks, there are many more opportunities for us than what you would have seen before. So, the scale of those vehicles is important, and so we think, in fact, the opposite to what you might think, is the larger they get, maybe the better returns that will come out of them.

Okay, thank you.

This concludes the question-and-answer session. I will now hand the call back over to Bruce Flatt.

That concludes our fourth-quarter webcast and conference call. We thank you for your time, and we look forward to updating you in the first quarter.

Thank you.

This concludes today's conference call. You may disconnect your lines.

Thank you for participating, and have a pleasant day.